18th Jul 2014 11:00
LONDON (Alliance News) - FTSE 100-listed Shire PLC has Friday agreed to be acquired by US drugs maker AbbVie Inc in a deal that values the pharmaceutical company at approximately GBP32 billion, and is set to cut AbbVie's tax rate by around 13% by 2016.
Shire has agreed to the acquisition which will give its shareholders GBP24.44 in cash and 0.8960 of an AbbVie share for each Shire share. The terms of deal give an indicative value of GBP52.48 per Shire share, based on AbbVie's closing share price of USD53.52 on Thursday.
Under the terms of the deal, Shire shareholders will own around 25% of the new company, whilst AbbVie shareholders will hold the remaining 75%.
The agreement comes after a series of proposals from AbbVie which Shire rebuffed for undervaluing the company. However, Shire said Monday that it was "willing to recommend" a raised takeover offer from the company after it made a sweetened proposal of GBP51.15 per share last week.
The combined market capitalisation of the merged companies would be approximately USD137 billion said AbbVie said in a statement to employees. The current combined workforce is around 30,000; AbbVie currently has 25,000 employees worldwide.
The new company will be incorporated in Jersey, where Shire is currently incorporated, and it will be listed on the New York Stock Exchange. As a result, AbbVie expects its effective tax rate to be reduced by around 13% by 2014. The new tax structure will provide it with flexible access to its global cash flows, it said.
The deal comes just days after US Treasury Secretary Jacob Lew urged Congress to take action to stop US companies from re-domiciling abroad to avoid taxes, in deals called "tax inversions." Several deals of this nature, particularly in the healthcare sector, have been on the cards in recent months. US-based Pfizer Inc made a failed bid in April to buy AstraZeneca PLC, and recently Medtronic Inc agreed to buy Ireland based Covidien PLC to cut down its taxes.
Lew called for "economic patriotism" in a letter to leaders of congressional tax-writing committees, calling for legislation to be enacted immediately and be made retroactive to May 2014.
Shire's board Friday recommended that shareholders vote in favour of the acquisition, and its directors have irrevocably undertaken to do so in respects of their own holdings of less than 1%.
Abbvie said that the companies have complementary strategies, citing that Shire would bring new growth platforms in neuroscience and rare diseases to the merged company. "Both businesses have complementary areas of strength, rather than overlap," said AbbVie in a statement to its employees.
AbbVie expects the merger to add to its earnings per share, excluding amortisation and accounting adjustment amongst others items, in its first year following completion. It expects this earnings per share to grow to USD1.00 per share by 2020.
It expects "multiple product launches" in the coming years, it said, including the launch of its combination hepatitis C therapy. Based on projected sales for its underlying business and the launch of the treatment, AbbVie expects to return to growth in 2015, it said.
The US company reiterated its commitment to growing dividend and implementing a "significant" share repurchase programme.
"The combination of AbbVie and Shire is attractive for shareholders of both companies, bringing the potential for strengthened sustainability of top-tier EPS growth, attractive free cash flow and enhanced cash returns to shareholders," said Chief Executive of AbbVie Richard Gonzalez in a statement.
"We believe that this offer reflects the substantial value that we have already created for Shire's shareholders and the strength of our future prospects," said Shire Chairman Susan Kilsby in a statement.
Shortly after the acquisition was announced Shire raised its guidance for earnings per share in 2014, now expected non-GAAP earnings per share growth in the low-to-mid 30% range, following a strong performance in its second quarter to end-June. It had previously guided mid-to-high 20% growth at the time of its first quarter results.
It now expects to see product sales growth in the high teens for the full-year, up from its previous guidance of mid-to-high teens.
Shire posted revenues of USD1.50 billion in the quarter, up from USD1.25 billion in the previous year, on product sales of USD1.47 billion, up from USD1.21 billion.
Following cash refunds received from the Canadian revenue authorities, and stronger operational cash flows, it now expects non-GAAP interest expense to be around USD10 million lower than in 2013.
It expects a higher combined non-GAAP research and development and selling, general and administrative expenses in the second half of the year as it continues to invest in its pipeline, ramping up for the anticipated launch of the products and continuing to expand its key product Vyvanse.
The company said its strong performance is a "testament to the value AbbVie sees in our company."
Results were boosted by a strong performance from hereditary angiodema attack treatment Cinryze, which it acquired with ViroPharma Inc in January. Additionally Vyvanse, used for the treatment of attention deficit hyperactivity disorder, saw sales of SD360 million during the quarter.
Late Thursday the company announced the results from the phase 4 efficacy and safety studies of Vyvanse, compared with Concerta, had shown that neither product was found to be "statistically superior to the other."
A US district court recently ruled that five pharmaceutical manufacturers looking to bring out generic competitors to Vyvanse had infringed patents, meaning Shire's exclusivity over the treatment its protected until the end of 2023 unless the ruling is successfully appealed.
Shire recently received a request from the US Food and Drug Administration that the company study the potential use of Vyvanse for the treatment of ADHD in preschool-age children aged 4 to 5, which would allow it to get a six month extension to its patents for Vyvanse under the Best Pharmaceuticals for Children Act.
Shire's performance in the year to date is an "important early stride" to meeting its target of USD10 billion in product sales by 2020, it said.
Edison Investment Research analyst Mick Cooper said the deal was " a positive outcome for both sets of shareholders and it is pleasing to see that personal egos have not interfered with the commercial rationale."
Shares in Shire were trading up 1.8% at 4,891.00 pence Friday morning, the biggest gainer on the FTSE 100.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews and Alice Attwood; [email protected]; @AliceAtAlliance
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